Coke expects more weakness at home in '07

NEW YORK (CNNMoney.com) -- Coca-Cola CEO Neville Isdell delivered a less than bubbly outlook for soda sales in the United States Tuesday, saying that he expects the weak sales trends to continue in 2007.

"I am making a new commitment to you. We will win again in the home market," Isdell told analysts during a conference call to discuss the company's earnings. "It won't come easily but we expect an improvement in the second-half of the year."

Coke has high hopes for its no-calorie soda Coca-Cola "Zero."

Investors appeared to be buoyed by Isdell's pledge and pushed Coke (Charts) shares higher in morning trading on the New York Stock Exchange.

The call was monitored via Web cast in New York.

On Tuesday, Atlanta-based Coca-Cola, the No. 1 beverage company ahead of Pepsi (Charts), reported first-quarter profits and sales that beat Wall Street estimates on the back of strong overseas sales.

Excluding items, the company posted earnings of 56 cents a share on sales of $6.1 billion. Analysts, on average, were expecting 53 cents and sales of $5.63 billion, according to Thomson Financial.

However, sales in North America, as measured by unit case volume growth, declined 3 percent.

Industry watchers say both Coke and Pepsi are struggling to grow sales and market share for its carbonated soft drinks in the United States as more health-conscious consumers migrate to energy drinks and bottled water products.

A report last month from trade publication Beverage Digest showed that Coke and Pepsi both saw their share of the soda market fall in 2006 for the second straight year, led by weak sales of Coke Classic and regular Pepsi.

The report said Coke's domestic market share dipped to 42.9 percent last year from 43.1 percent in 2005 as total soft drink sales overall slipped 0.6 percent in the United States in 2006.

Other Coke executives also expressed their disappointment with Coke's poor performance at home.

"When we walk around the U.S. market, it's like we've lost the drive to create impulse and we want to bring that back," Coca-Cola president and chief operating officer, Muhtar Kent, said during the call.

"In Latin America, Europe, Asia, North Africa, it says everywhere 'Ice cold Coke served here.' Not in the U.S.," he said. "You'll see our sense of urgency."

To his point, total unit case volume growth increased 6 percent in the quarter, the highest level for the company since 2002. However, the momentum was driven primarily by strong drinks sales in the company's emerging markets, including China, Russia, South Africa, Nigeria, Eastern Europe and Southern Eurasia, where unit case volume grew at double-digit rates.

Isdell also blamed some of the softness in the U.S. market to "sticker shock" for consumers because of price increases at the retail level for Coke's carbonated drinks brands.

Looking ahead, Coke executives are pinning their hopes on Coke "Zero," a calorie-free variation of Coca-Cola launched in 2005, its new "Diet Coke Plus" drink, energy soda beverages like "Vault Red Blitz", flavored waters and ready-to-drink coffee drinks to grow pump up U.S. sales in the second-half of the year.

"Zero was a clear winner last quarter," said Kent, alluding to the brand's double-digit case volume growth in the U.S. "We will work on more extensions around Zero."

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